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. WILEY, from the Committee on the Judiciary. submitted the

following

REPORT

[To accompany S. Res. 256]

The Committee on the Judiciary, to whom was referred the resolu1 (S. Res. 256) to refer to the Court of Claims the bill (S. 2834) the relief of Elizabeth R. Pendleton, having considered the same, now report the resolution to the Senate favorably, without amendnt, and recommend that the resolution pass.

The purpose of the resolution is to refer to the Court of Claims, for lings of fact and further report to the Senate, the bill S. 2834 itled "A bill for the relief of Elizabeth R. Pendleton."

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80TH CONGRESS 2d Session

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SENATE

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REPORT No. 1701

AMENDING THE SERVICEMEN'S READJUSTMENT ACT OF 1944, AS AMENDED

JUNE 15, 1948.-Ordered to be printed

Mr. TAFT, from the Committee on Labor and Public Welfare, submitted the following

REPORT

[To accompany S. 2790]

The Senate Committee on Labor and Public Welfare, to whom was eferred the bill (S. 2790) to amend the Servicemen's Readjustment Act of 1944, as amended, and for other purposes, having considered he same, report favorably thereon, with an amendment, and recomend that the bill, as amended, do pass.

The amendment made by the committee is as follows:

On pages 1 and 2, strike out all of section 511 (a) and insert in lieu hereof the following:

SEC. 511. (a) The Administrator is authorized under such terms and condions as he may prescribe, consistent with this Act, to purchase at a price equal > the unpaid principal plus accrued interest, hereinafter referred to as "par", y real-estate loan guaranteed under section 501 or 502 of this title: Provided, hat (1) such loan is offered to the Administrator for purchase within five years the date of its origin by the lender to whom evidence of guaranty was origially issued; (2) the original dollar amount of loans purchased from any seller Irsuant to this section shall not exceed 66% per centum of the aggregate original ollar amount of all loans eligible for purchase pursuant to this section which ch lender has originated, nor more than 66% per centum of the original dollar nount of the loans originated by such lender during any one calendar year; ) the original amount of the loan shall not exceed $10,000; (4) the loan shall t be in default at the time of purchase; (5) no loan financing the purchase price a dwelling on which construction is begun subsequent to August 1, 1948, shall eligible for purchase unless such dwelling has been built and inspected in conrmity with minimum construction standards prescribed by the Administrator; ) the Administrator shall refuse to purchase any loan which in his judgment es not reflect acceptable credit or security standards in its origination; (7) loans ade after August 1, 1948, shall be eligible for purchase only if made on standard ms prescribed by the Administrator; and (8) at the option of the Administrar, the seller shall enter into an agreement with the Administrator that the seller ll service the loan in return for a service charge at such rate, not less than oneIf of one per centum nor more than one per centum per annum, as may be ovided in such agreement. The Administrator may sell any loan purchased der this section at a price not less than par, without recourse, and upon such

terms and conditions, including restoration of the guarantee, as the Administra tor may determine.

EXPLANATION OF THE BILL

S. 2790 is a bill to establish a secondary market in the Veterans' Administration for the purpose of purchasing loans made under sections 501 (the home loan section) and 502 (the farm loan section) of the Servicemen's Readjustment Act of 1944, as amended. The Administrator would be authorized to purchase loans not in excess of $10,000 under such sections, if offered to him, within five years after the date of the loan, by the lender to whom evidence of guaranty was originally issued. No one lender could offer more than 66% percent of the aggregate original dollar amount of all loans originated by him, nor more than 66% percent of the original dollar amount of loans originated in any one calendar year.

While all loans made under these sections would be eligible for purchase by the Administrator, loans made after August 1, 1948. would have to be on standard forms prescribed by the Administrator. Loans on dwellings placed under construction after August 1, 1948. would be subject to inspection by the Administrator to see that the dwelling meeets the minimum construction standards to be prescribed by the Administrator. The Administrator could not purchase any loan which did not reflect acceptable credit or security standards in its origination.

In return for servicing loans sold to the market, the Administrator could pay a service charge of 2 to 1 percent per annum on the unpaid balance of the loan. The Administrator would be authorized to resell such loans at par, without recourse and upon such terms and conditions, including restoration of the guaranty, as he may determine. Funds to operate the market would be provided by means of a public debt transaction under the Second Liberty Bond Act.

The bill also adds an incontestability clause to the loan guaranty provisions of the Servicemen's Readjustment Act, making conclusive as to the eligibility of the loan for guaranty, all evidences of guaranty or insurance issued by the Veterans' Administration. Defenses based upon fraud or material misrepresentation of the holder, or upon regulations of the Veterans' Administration in force on the date of issuance of the guaranty or disbursement of the loan, are reserved.

STATEMENT OF COMMITTEE

The need for a secondary market for the so-called GI loan has become more and more evident since the expiration on June 30, 1947. of the Government market administered by the Reconstruction Fi nance Corporation. In many areas throughout the country, lenders have reached the saturation point for this type of paper, unless they are assured of support for a portion of their commitments, both present and future. The firming of yields in other types of securities has slackened the interest of other lenders in the 4-percent GI loan. As a result, Veterans' Administration records show a sharp drop in the number of title III loan applications since September 1947. The committee believes that the establishment of the secondary market contemplated by S. 2790 will go far toward making money more readily available to those veterans who earnestly desire a home of

their own. follows:

The purposes of the major provisions of the bill are as 1. The market is open to each loan for a period of 5 years after it is made. This is to give a continuing assurance to lenders that the Government is ready to stand behind veterans' mortgages and so achieve a stabilizing influence upon the mortgage portfolios of major ending institutions. The assurance that the Government will hold a market open to him for 5 years should encourage lenders to hold GI loans as earning assets and to sell them only in case of need. It should also prevent the flurry to sell which was experienced in the ast days of the RFC market for this type of paper.

2. Inclusion of farm loans should go far to encourage lenders to make farm loans to veterans at a 4-percent interest rate.

3. By making the market applicable to loans already made, as well as to future loans, areas in which the market for this type of pan has reached the saturation point, should become more liquid and hus again be able to offer the advantages of the GI loan to veteran embers of such committees.

4. Absence of any provision limiting the dollar amount of mortgages which can be purchased by the Administrator should lead to a stable market without any rush on the part of lenders to sell their paper efore funds are exhausted.

5. Limitation of the maximum amount of loans to be purchased rom any lender to 66% percent of his aggregate dollar amount of ans originated will tend to encourage the continued investment of heir own capital in GI loans by lenders, and will make them equally esponsible with the Government for the success of the program. 6. Limiting the maximum dollar amount of any loan eligible for urchase to $10,000 should encourage the building of lower cost homes or veterans which can be financed at a figure not in excess of this

um.

7. Inclusion of conformity to minimum construction standards for ans on construction begun after August 1, 1948, and the provision at all loans must reflect adequate credit and security standards in eir origination will tend to insure sounder homes for veteran pur

hasers.

8. Authorization to the Administrator to pay a nominal service harge to lenders for the servicing of loans sold to the market will duce administrative expenses on such loans and will keep the rvicing of loans in the veteran's own community where his personal oblems will be more readily understood.

9. The authority to resell loans at or above par will offer to the overnment an opportunity to hedge its investment from time to me, or to take profits where such procedure appears to be in the terest of the Government.

ESTIMATE OF COST

It is not possible accurately to predict the cost of this legislation. though the advancement of large sums may be called for under the eration of the market, there is every reason to believe that the timate cost may not be great. Only as market conditions develop ll it be possible to predict probable cost. Continuance of favorable

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